Public Policy, Price Shocks, and Conflict: Price Shocks and Civil War in Developing Countries∗

Those who study the role of agriculture in the political economy of development focus on government policy choices on the one hand and the impact of price shocks on the other. We argue that the two should be studied together. We find that civil unrest (Granger) causes government policies, pushing governments in poor and medium income countries to shift relative prices in favor of urban consumers. We also find that while civil wars are related to food price shocks, when government policy choices are taken into account, the relationship disappears. We thus learn two things: Policies that placate urban consumers may inflict economic costs on governments, but they confer political benefits. And when estimating the relationship between price shocks and political stability, equations that omit the policy response of governments are misspecified.